Electricity Industry: Vertical Integration (Hansard, 8 May 1996)

§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
My Lords, the Government have said that they do not regard vertical integration as inherently objectionable, whether in the electricity industry or elsewhere. However, my right honourable friend the President of the Board of Trade is required to consider each case on its merits.

§ Lord Ezra
My Lords, while I thank the noble Lord for his reply, does he accept that there is a degree of confusion in people's minds as to the Government's policy in this matter? Does he recall that in the 1988 White Paper, which predated the privatisation of electricity, the Government came out very strongly against vertical integration in that sector in England and Wales, even though it existed in Scotland? Does he further recall that in 1995 when the golden share was removed from the regional electricity companies a number of takeovers took place, some against the recommendation of the OFT, and this suggested that the Government had totally changed their policy? More recently, against the advice of the Monopolies and Mergers Commission, the Government have prevented the vertical integration of two major generating companies with regional electricity companies. The Secretary of State has emphasised that the Government will retain their golden share, thus preventing the two generating companies from being taken over by anyone else. Is it not rather confusing? Is it not about time that the Government came out with a clear statement of policy?

§ Lord Mackay of Ardbrecknish
My Lords, I do not agree with the noble Lord, Lord Ezra, that it is confusing. I believe it is perfectly clear. As my right honourable friend the President of the Board of Trade has made clear on a number of occasions, each case has to be considered on its merits. As his announcement on 24th April made clear—and as I did in my original Answer—he does not believe that vertical integration is inherently objectionable. However, he believes that in the current state of the market there would be significant detriments to competition if these mergers proceeded at this time.

§ Lord Clark of Kempston
My Lords, does my noble friend agree that, whether it is vertical or horizontal integration, the privatisation of previously nationalised industries, including electricity, has been a great boon to 107 the British taxpayer in that the taxpayer was previously paying a subsidy of many millions of pounds to the nationalised industries, whereas now, the Chancellor of the Exchequer, to the advantage of the British taxpayer, is receiving revenue from the previously nationalised industries?

§ Lord Mackay of Ardbrecknish
My Lords, my noble friend is of course absolutely right. Over the past 17 years, privatisation policies have been hugely successful in a vast number of industries which have moved out of the public sector into the private sector. The proof of the pudding is that the party opposite in all its promises and pledges, although few in number when it comes to counting them, has made no promise or pledge to renationalise the privatised industries. I could not help but notice a recent article in the Economist which stated: In state hands Britain's electricity industry was grossly inefficient and so a costly burden for the rest of the economy. The Conservatives were right to privatise it".

§ Lord Borrie
My Lords, in the light of his answer to the supplementary question asked by the noble Lord, Lord Ezra, will the Minister tell us why, if there is no confusion in government policy, they have banned the mergers proposed by PowerGen and National Power, but have permitted the merger between Scottish Power and ManWeb?

§ Lord Mackay of Ardbrecknish
My Lords, the issues and the cases in front of my right honourable friend the President of the Board of Trade were different. I am sorry that some noble Lords opposite laugh. It seems to me that there is a considerable difference between Scottish Power and PowerGen and National Power. Even someone with only a passing knowledge of the electricity industry would know that there is a considerable difference. So far as concerns PowerGen and National Power, my right honourable friend the President of the Board of Trade, as he said in his Statement, did not accept the MMC's view that the adverse effects of the mergers that it identified could be met adequately by the remedies it proposed, and he therefore came down against the proposal that the merger be allowed to go ahead. The position with regard to Scottish Power is that it may be a large generator in Scotland but its generating capacity into England and Wales is severely limited by the power of carriage of the interconnector, as I am sure the noble Lord, Lord Borrie, knows full well.

Lord Campbell of Croy
My Lords, as the two electricity companies in Scotland have for many years each been both a generator and a distributor, are any problems arising with them, since after privatisation they appear increasingly to be undertaking projects in England?

§ Lord Mackay of Ardbrecknish
My Lords, as my noble friend will be well aware, the situation in Scotland is as always a bit different from that in the South. The two authorities in Scotland, which were privatised, form in some ways competing companies. However, in England and Wales if one had had vertical integration 108 on privatisation there would have been little or no competition. We were determined to introduce competition, which is why we took the course we did on privatisation. As those noble Lords who are interested in electricity will know, competition is increasing; generation is being spread beyond PowerGen and National Power; and the position on competition is therefore likely to evolve and change into the future.

§ Lord Dubs
My Lords, how does the Minister reconcile the Statement of the President of the Board of Trade when he banned the two mergers in April with the fact that the DTI itself gave evidence to the MMC in which it said that it was for the MMC to consider the balance of advantage? Is that not another instance of the Government not having a policy, even on those two mergers?

§ Lord Mackay of Ardbrecknish
My Lords, of course it is for the MMC to consider the balance of advantage and disadvantage, but it is also for the Government to decide upon the recommendations made by the MMC. The MMC does not make recommendations which the Government are obliged to follow. The Government then has to make a decision based upon what the MMC says, and, in this case, upon what the Director General of Electricity Supply says. In the two cases at which we are looking, my right honourable friend Ian Lang decided, as I have already said, that he should not approve the two proposed take-overs.